Claims etc. - Rule 82: Obligations with respect to claims

Rule 82 Obligations with respect to claims

1 A Member shall:

a promptly notify the Association of any event which may give rise to a claim upon the Association, and of any formal enquiry into a loss or casualty involving the Ship;

b upon the occurrence of any event which may give rise to a claim upon the Association, take and continue to take all such steps as may be reasonable, including the preservation of any right of recourse against a third party, for the purpose of averting or minimising any liability, loss, cost or expense in respect whereof he may be insured by the Association;

c notify and, if possible, consult the Association prior to taking any action as described in Rule 82.1(b) above;

d promptly provide the Association with all documents and information which may be relevant to such event and which are required to enable the Association to determine whether the event is covered according to these Rules;

e allow the Association or its appointees to interview any person who in the opinion of the Association may have knowledge relevant to the event;

f not without the prior consent of the Association admit liability for or settle any claim for which he may be insured by the Association.

2 If a Member commits a breach of any of these obligations:

a the Association may reject any claim, or reduce the sum payable, in relation to such event; and

b the Member shall reimburse to the Association such part of any costs or expenses incurred by the Association in relation to such event as the Association shall determine.

3 The Association shall have the right if it so decides to control or direct the conduct of any claim or legal or other proceedings relating to any liability, loss, cost or expense in respect whereof the Member is or may be insured, in whole or in part, and to instruct, on behalf of the Member, lawyers and other advisers and experts to assist and to require the Member to settle, compromise or otherwise dispose of such claim or proceedings in such manner and upon such terms as the Association sees fit, provided that no actions or directions of the Association shall imply an obligation to cover the liability, loss, cost or expense. If the Member does not settle, compromise or dispose of a claim or of proceedings after being required to do so by the Association, any recovery by the Member from the Association in respect of such claim or proceedings shall be limited to the amount he would have recovered if he had acted as required by the Association.

4 A Member shall, in respect of a dispute which falls under the cover, for his own account, obtain information, make calculations, attend meetings and otherwise provide assistance, where such work can be performed by him or by persons employed by him or regularly engaged by him to perform such services.

Guidance

Since all claims and all costs and expenses that are incurred by the Association in handling claims are financed predominantly by the membership as a whole out of premiums that are levied on the membership, all Members have a duty to ensure that any event that may give rise to a claim on the Association is promptly notified to the Association, and dealt with in a manner that minimises the risk to the Association of unnecessary financial loss. The Association has a duty to ensure that claims that are made by individual Members against the Association are administered with proper discipline and cost control, which may require the Association to assume claims handling control in certain cases in order to fulfil this responsibility. Individual Members must seek to comply with the requirements of the Rule to the best of their ability since any failure to do so may give the Association the right to reject any claim or to reduce the compensation that is payable.

(A) …promptly notify the Association of any event which may give rise to a claim upon the Association… (Rule 82.1.a)The obligations that are imposed by this Rule are mandatory. Notice is required not only of an event thathas given riseto a claim against the Association, but also of any event thatmay give riseto such a claim. Members must notify the Association of any event that may give rise to a claim even if the Member considers it unlikely that such a claim will in fact arise. There are no formal requirements for the giving of notice to the Association for these purposes although it is sensible that such notice should be given in writing to avoid any misunderstanding.

The Member must notify the Association promptly. Rule 82.1.a does not specify exactly what is meant by ‘prompt‘ notice, but the Member is normally expected to communicate information to the Association without delay as soon as he comes aware of the event.

Rule 82.1.a requires the Member to give prompt notice to the Association of any event that may give rise to a claim on the Association, and if this is not done, the Association has the right to reduce or reject the claim pursuant to Rule 82.2.a. However, if the Member does not give notice to the Association within six months of becoming aware of such an event, then Rule 81.1 emphasises that he loses his right to receive any compensation from the Association for a claim that arises as a result of the relevant event.

(B) …take and continue to take all such steps as may be reasonable…notify and, if possible, consult the Association prior to taking any action… (Rules 82.1.b and c)The combined effect of Rules 82.1.b and c is to require a Member, on the occurrence of an event that may give rise to a claim against the Association, to take steps to mitigate such claim and to notify and, if possible, consult the Association before taking such steps. These Rules are consistent with general principles of marine insurance law that require an insured to act as though he is uninsured and to ‘sue and labour’ to minimise or prevent loss. If the Member fails to take the steps that are required by Rules 82.1.b and/or c then the Association has the right to either reject or reduce the claim under Rule 82.2.a. However, if the Member complies with his duties under Rules 82.1.b and/or c, cover may be available for extraordinary costs and expenses that are reasonably incurred by him by so doing.1

The obligation of the Member to take steps to minimise loss continues until such time as the claim is finalised, and it includes the duty to preserve any rights that the Member may have to claim against third parties since the Association may wish to exercise such rights of recourse by way of subrogation after it has compensated the Member.

The Member is required to take such steps as may be reasonable, and the question of what is ‘reasonable’ may differ from case to case. For this reason, Rule 82.1.c requires the Member, if time allows, to consult the Association before taking any of the steps that are described in 82.1.b since the Association has substantial experience of the appropriate measures that should be taken in different circumstances, and can provide valuable advice in that regard. In view of the ease and speed of modern communication, it is only in exceptional circumstances that a Member will be considered not to have had sufficient time to consult the Association. In any event, when assessing whether any course of action is reasonable, the Association will balance, on the one hand, the cost and appropriateness of taking such action in the light of the loss or damage that has been incurred or is anticipated, and, on the other hand, the time that was available to the Member to take such action.

(C) …promptly provide the Association with all documents and information… (Rule 82.1.d)Rule 82.1.d requires the Member to disclose all available information to the Association as soon as possible. This is required for two reasons: firstly, to enable the Association to provide the fullest possible advice in the light of the information available; and secondly, to allow the Association to assess the extent to which it should be involved, and the extent to which cover is, or is not, available for any particular matter.

(D) …allow the Association or its appointees to interview any person who in the opinion of the Association may have knowledge relevant to the event… (Rule 82.1.e)Rule 82.1.e obliges the Member to assist any lawyers, surveyors or other experts that have been appointed by the Association to investigate an event that may give rise to a claim on the Association. The Member is obliged to make his own servants or agents and all other persons who may have information that is relevant to an investigation, available for interview.

(E) …not without the prior consent of the Association admit liability for or settle any claim… (Rule 82.1.f)It may not be appropriate for the Member to make an admission of liability before a proper and full analysis of the relevant facts and law has been concluded since such an admission may prejudice the Member’s prospects of defending or minimising the claim. Similarly, it may not be beneficial for the Member to settle a claim that has been brought against him until all the circumstances and the merits of the case have been properly assessed. In most cases, the Association and the Member will agree on whether a claim should be settled and the basis upon which it should be settled. However, Rule 82.1.f gives the Association the right to direct the Member not to make any admission of liability, nor to settle a case, if it considers that such a course of action is inappropriate having regard to all the circumstances.

If a Member decides to settle a case on terms that do not reflect the true legal merits of the case, e.g. for his own commercial reasons, the Association is likely to decline cover for such settlement either in full or in part pursuant to Rule 82.2.a since the loss that the Member has incurred in such circumstances would not be considered to be a loss that the membership as a whole should share in the spirit of mutuality.

The same considerations apply in relation to both P&I and Defence cover.

(F) If a Member commits a breach of any of these obligations... (Rule 82.2.a)Rule 82.2 establishes the sanctions that are applicable should the Member not comply with the requirements of Rule 82.1, and such sanctions are applicable irrespective of the circumstances, and regardless of the reasons for the non-compliance.

(G) …the Association may reject any claim, or reduce the sum payable… (Rule 82.2.a)Rule 82.2.a gives the Association the right to either reject the claim in full, which it will do in cases of flagrant breach, or to reduce the sum that is otherwise payable if the breach has, in the Association’s opinion, resulted in additional liability, costs or expenses.

This provision operates both as a supplement to, and independently from, any similar provisions that may apply under other Rules.

(H) …the Member shall reimburse to the Association such part of any costs or expenses incurred by the Association… (Rule 82.2.b)Rule 82.2.b provides a similar sanction for the costs and expenses that the Association has been obliged to incur if the Member has not complied with the requirements of Rule 82.1, e.g. costs and expenses that have been incurred by the Association in relation to legal services, correspondents or surveyors.

(I) The Association shall have the right…to control or direct the conduct of any claim or legal or other proceedings… (Rule 82.3)The Association has the right, but not the duty, to control or direct the handling of claims. This right is not exercised in all cases, but is likely to be exercised if the claim is substantial or complex or may have a material impact on the operations of other Members or the Association itself. The Association may also exercise such right if it is of the opinion that the manner in which the Member is conducting the handling of the claim and/or any legal or other proceedings is likely to cause material prejudice to the Association, or is otherwise contrary to the best interests of the membership.

(J) …to instruct, on behalf of the Member, lawyers and other advisers and experts to assist…(Rule 82.3)In most cases, the Member will consult the Association before instructing lawyers, advisers or experts, and this is usually beneficial for both the Member and the Association, as it avoids possible later disagreement. In almost all cases, the Association will wish to be satisfied that the lawyers, surveyors and other experts that are instructed to act on behalf of the Member are those who, in the Association’s experience, have the capacity and/or expertise that is necessary to deal with the particular claim and are people with whom the Association already has an established relationship. Therefore, Rule 82.3 gives the Association the right to make such appointments on behalf of the Member whenever it thinks it necessary to do so.

In some cases, a Member may instruct an external lawyer or other adviser in his own jurisdiction to help the Member to fulfil the obligations that he has under Rule 82.1. b, c and d and Rule 82.4. However, since these are obligations that the Member must satisfy in any event in order to secure cover from the Association, cover is not available for the cost of doing so.

(K) …provided that no actions or directions of the Association shall imply an obligation to cover the liability, cost or expense… (Rule 82.3)Should the Association suggest or direct the appointment of lawyers and other experts, or even appoint such people on behalf of the Member, or suggest or direct a particular course of action, in an effort to assist the Member before it has been established that cover is in fact available for the particular claim, Rule 82.3 makes it clear that the Association does not, by so doing, acknowledge or confirm to the Member that cover is in fact available for the claim. Notwithstanding the provision of such assistance the availability or otherwise of cover will be determined by the provisions of the Rules and any special terms of entry.

(L) …If the Member does not settle, compromise or dispose of a claim or of proceedings after being required to do so by the Association any recovery…shall be limited… (Rule 82.3)Rule 82.3 goes on to outline the consequences of the Member’s failure to settle, compromise etc., the claim or any proceedings as and when required by the Association. In such circumstances, the Association is obliged to limit the compensation that is payable to the Member to the amount that the Association considers would have been recoverable by the Member if the matter been concluded as directed.

If the Association directs a Member to settle a claim, it will normally indicate the maximum figure that will be recoverable from the Association if the Member settles the case as directed by the Association. In the case of P&I cover, this figure will generally be gauged by reference to an available settlement offer, and in the case of Defence risks, by reference to the costs and recoverable costs that have been incurred up to the time of the direction.

(M) A Member shall…provide assistance, where such work can be performed by him or by persons employed or regularly engaged by him… (Rule 82.4)Rule 82.4 obliges the Member to play an active role in the claims handling process, and to ensure that the work that can and should be done by the Member or his employees is in fact done in order to avoid or minimise the unnecessary involvement of experts or other third parties and the consequent costs of doing so. Rule 82.4 should also be read in conjunction with Rule 77.a which provides that cover is not available for costs that are incurred by the Member in order to provide such assistance to the extent that such costs can reasonably be considered to be the Member’s internal administrative costs and expenses.

1 See the Guidance to Rule 46.

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